Brexit! Fix It!

SpotGoldJune 23 and the early hours of June 24 were one of the most explosive periods of time in the gold markets in quite some time. From the low in the early hours of June 23 to close to midnight in New York that same day, the price of gold rose by over $100/oz.! The reason of course was panic from the vote of the British people to leave the European Union.

That’s exciting for those of us who own gold shares, but before you get too optimistic, realize that when this gold price thermometer rises like this, it means there is an infection in the global economy that does not bode well for the happiness of humankind.

As Zero Hedge reported today, according to Google, the number of Internet searches for the phrase “buy gold” spiked by 500% after the Brexit results trickled through around 5am. Investors flocked to the safe haven asset during Asian trading, while the pound plummeted to a 31-year low.

So gold had a great day and our gold shares did well too. But another article in Zero Hedge titled, “Today is the appetizer for Monday,” the author of the article said, I do feel that Monday is where we’re going to see a truer look at “where the bodies are buried” and a more accurate “price discovery” process than what we’re seeing today (as we’re washing out all the Delta One flows which are dwarfing client trading)…lots of discipline being displayed thus far, with low turnovers and folks not chasing.

So today looked like a good day for those of us in gold. But don’t let yourself become complacent, because if we start to see a massive decline in the markets on Monday, I have a couple of concerns. First, gold could get sold down too, as the dollar and U.S. Treasuries continue to rally in that blow-off rally Michael Oliver is calling for. Or another concern I have is that if the markets seize up as they did in 2008 or potentially much worse than in that fateful year, we may see all manner of totalitarian policies and/or martial law implemented. Anything is possible. Indeed, as my friend David Jensen has pointed out numerous times in the past, the LBMA is already a nonfunctioning market. As long as people are content not to take delivery of gold and silver but simply to roll over or sell their paper contracts, investors can continue to pretend they own with no consequence. But if and when confidence in fiat money and the system in general breaks down and people demand delivery of gold, all hell could and most likely will break loose as failure to deliver actual metal by the physical markets may trigger a domino effect in all manner of other actual and pretend derivative markets.

As for the Brexit vote, I’m afraid my friend David Jensen may be right in suggesting the political elite may simply blame “stupid red necks” for the meltdown in the markets and simply overrule the vote of the British people. After all don’t the graduates from Cambridge, Oxford, Harvard, Princeton, and Yale know what’s best for all the rest of us? Isn’t it obvious they can’t let stupid hillbillies vote unless they vote “the right way?” And after all, are not gold bugs and others who believe in free markets by definition members of the hillbilly class?

Gone are the days when there is any reverence, belief, or understanding that the collective wisdom of markets, is superior to the wisdom of the elite. Our Founders knew that. Adam Smith knew it. So I can’t be sanguine at all about Monday or next week. I have seen how the elite behave and every crisis is an excuse to punish us with more regulation and additional fascist/totalitarian policies. This may be the start of the very difficult times we have all feared but also may be the reason it is better to own gold than not to own it. Actually I do fear gold may be confiscated once again, especially if it becomes necessary for the establishment to back currency that for mo honest money or silver again. I could see the U.S. calling in gold once again and paying us in cash, as Roosevelt did in the 1930s before revaluing gold at a much higher price. Remember, owners of gold shares of Homestake did extremely well in the 1930s because gold mining became the means by which to increase the money supply. So it may be conceivable that the only way to “fix it” will be by returning to honest money, to gold—meaning that the gold mining industry will become the new banks, in which event, they could very well trade places in terms of S&P weightings with the Goldman Sachs, J.P. Morgans and Citibanks of today. Or is that just some wishful thinking by this gold bug-hillbilly? If it is, keep in mind that the likes of James Rickards and Jim Sinclair are both suggesting a monetary reset based at least in part on a gold reset at much, much higher price levels.

About Jay Taylor

Jay Taylor is editor of J Taylor's Gold, Energy & Tech Stocks newsletter. His interest in the role gold has played in U.S. monetary history led him to research gold and into analyzing and investing in junior gold shares. Currently he also hosts his own one-hour weekly radio show Turning Hard Times Into Good Times,” which features high profile guests who discuss leading economic issues of our day. The show also discusses investment opportunities primarily in the precious metals mining sector. He has been a guest on CNBC, Fox, Bloomberg and BNN and many mining conferences.